Underbanked may build credit rank via neobanks

January 19, 2021

BY transacting through digital banks—so-called neobanks—the underbanked segment in the Philippines can build credit score, allowing access to more financing in the long term, a financial technology (fintech) executive said.

While neobanks and credit scores have an indirect relationship, CredoLab Pte. Ltd. Founder and CEO Peter Barcak said the former allows more opportunities to create credit history.

“Through AI [artificial intelligence]-based credit scoring algorithms, digital-only banks offer greater accessibility to Filipinos even in the most rural areas,” he said.

The AI tool enables creditworthiness to be assessed using smartphone metadata.

“This non-intrusive privacy-consented data is used to detect predictive patterns, giving the underbanked an opportunity to leverage banking services they otherwise won’t be able to access,” Barcak explained.

The alternative credit scoring scheme is allowing borrowers to make and complete purchases, Barcak noted, which then contributes in increasing credit scores.

“By working with neobanks utilizing credit scoring technology, Filipinos can have greater access to personal credit or credit for future business endeavors,” he added.

In this way, financial inclusion will further be promoted in the country as well, Barcak said.

On the other hand, Barcak explained that having an alternative credit scoring system will also discourage borrowers from dealing with loan sharks or informal lenders who charge exorbitant fees.

“Oftentimes, such alternatives put consumers and their long-term finances at risk,” the CredoLab official said. “With the emergence of neobanks, consumers no longer have to turn to such risky alternatives.”

In the Philippines, Barcak said that the digital banks can fill in some of the gaps in banking service demands, offering affordable and accessible financial products.

“In a country as young and digital-savvy as the Philippines, it comes as no surprise that 15 percent of Filipino adults, or 10.2 million Filipinos, currently have a digital-only bank account,” he added.

Last month, the fintech player announced its partnership with local digital bank Tonik Financial Pte. Ltd. to provide quicker loan application process. CredoLab’s artificial intelligence-based algorithm is set to be incorporated on the neobank’s mobile banking platform, providing Tonik credit scores in real-time.

Originally published in Business Mirror PH.